JAPAN Trends and Developments Contributed by: Hajime Ueno, Masaru Shibahara and Takahiro Kato, Nishimura & Asahi (Gaikokuho Kyodo Jigyo)
etc). It also has provisions concerning the grantor’s authority to dispose of the movable property or to col - lect the collective claims and the obligation to main - tain collateral value. Third, the law introduces new rules governing revolv - ing Title Transfer Security, including assignment and crystallisation of the principal amount, among other matters. Rationalisation Priority rule of movable title transfer security rights over other security rights in the event of conflict It was sometimes difficult for third parties to recognise movable title transfer security rights because one of the ways to perfect those security interests was an agreement, whereby the grantor who possessed the relevant movable property agreed to hold it on behalf of the security holder thereafter. This created chal - lenging situations and made it difficult for others who were considering taking security interests in the rel - evant movable property to assess the collateral value accurately. In the new law, registered security interests, which can be identified by third parties easily, have priority over security interests perfected only by the private agreements referenced above. Regulations concerning private execution without court proceedings Previously, security transfer agreements were rec - ognised only in customs and case law, which also meant there were no judicial enforcement proce - dures. Enforcement against the collateral was carried out through private execution, via acquisition or dis - position of the collateral without court involvement. However, this form of private execution was often completed within a short period, making it difficult for grantors to secure sufficient time to use bankruptcy law systems for business rehabilitation. For this reason, the new law establishes a grace period before private enforcement can be completed, and the enforcement is not deemed complete until two weeks after the date of notification of the enforcement.
With regard to claiming title transfer security rights, however, security holders can collect money direct - ly from obligors of the relevant claims without the involvement of debtors (that is, the creditor of such claims). No grace period applies in such scenarios. Treatment of title transfer security in bankruptcy proceedings There were no express provisions governing the treat - ment of Title Transfer Security in bankruptcy proceed - ings. In addition, the existence of an order to suspend enforcement of security rights alone may make it dif - ficult for the debtor to continue business operations during civil rehabilitation proceedings or corporate reorganisation proceedings. Therefore, the new law codified the fact that Title Transfer Security is treated similarly to pledges in bankruptcy proceedings. In addition, the new law established a form of court order prohibiting enforce - ment, and an order rescinding enforcement, of Title Transfer Security. Measures to secure sources of repayment for general creditors If extensive security rights are established, there is a risk that sources of repayment for general creditors may be depleted. Therefore, the new law establishes a system whereby a holder of security rights must contribute a specified amount to the bankruptcy estate if bankruptcy pro - ceedings are commenced against the grantor within a year after the enforcement of a security right over collective movable property or collective claims. Special rule for title transfer security rights in collective claims Title Transfer Security rights in collective movable property do not extend to movable property joined after the commencement of bankruptcy proceed - ings. However, in principle, security rights in collec - tive claims do not extend to claims generated after the commencement of bankruptcy proceedings, but could extend to those claims in civil rehabilitation pro - ceedings and corporate reorganisation proceedings if the grantor and the security holder so agree. In these cases, a certain amount of money should be secured
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